An increase in the marginal propensity to save (MPS)
A) increases the value of the multiplier.
B) increases autonomous consumption.
C) increases the marginal propensity to consume (MPC).
D) none of the above.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) represents the fraction of additional income that is saved instead of consumed. Therefore, an increase in MPS indicates that a smaller fraction of additional income is consumed and a larger fraction is saved. This means that the multiplier effect, which is dependent on the MPC (not MPS), would be smaller. As a result, choice A is incorrect. An increase in MPS does not change autonomous consumption, so choice B is also incorrect. Finally, an increase in MPS does not increase the MPC, so choice C is incorrect. Thus, the correct answer is D, none of the above.

An Increase in the Marginal Propensity to Save (MPS)